How Pay Day Loans Can Become a Nightmare
The pay day loan industry is one of the fastest growing businesses concepts that our country has ever seen. Supposedly it is set-up for emergency access to money when you needed the money like yesterday.
This industry sprung up on the skirts of epidemic bankruptcies in the USA. Working class people had become accustomed to spending more than they had on the promise to pay the money back at a later date. Predictably such types of spending habits catch up with you and eventually people become so over extended with credit card payments, cars that they could not afford but wanted — and got anyway plus any of a number of other buy now pay later types of purchases that record bankruptcies were the result of many families coming to reality with their poor spending habits.
Ronald Reagan used the term “Trickle Down” economy, which basically means the same thing as buy now and pay later at astronomical rates. The 1980’s generation practiced this new philosophy and by the look of things it was passed down to the next generation.
Pay day loans came in to offer these distressed families who the banks and normal loan companies wouldn’t work with and gave them a new alternative when it came to getting a loan in a hurry, but of course it came at a very high price.
Some pay day loan companies finance rates were as high as 38.50% — on a 14 day loan. Over the course of a year that would be approximately a 988% APR. Such high rates make a 28.50% annual credit card rate appear generous – which of course it is not.
Pay day loans work like this; you bring in basic information such as a photo ID, for example your Driver’s License or State ID. You will need to show your Social Security Card’s and you are required to have a working telephone number that can be a land line or cell phone because with the majority of pay day loan companies, that part doesn’t matter. The other thing you will need is a piece of mail such as a utility bill that shows your current address.
While most Pay Day Loan companies will accept your most recent pay check as proof of income, other companies require you to have direct deposits of your check made to your checking account. While still other short term loan companies will only approve you for a loan if your employer verifies you are still employed, pay check in hand or not.
Competition has gotten so fierce that merely presenting a bank statement showing proof that you have an open account is all Pay Day Loan companies are looking at. It doesn’t matter if your balance is at a negative $500 or that you have had a hundred overdrafts within the last year you in most cases will still qualify for some type of loan.
Credit checks normally are not done when you apply for a Pay Day Loan so your credit history isn’t held against you. Some companies are members of a inner circle type of credit checking system that checks for bounced checks and how many other pay day loans a client has out. Too many of these types of issue can limit the amount of money you can borrow or disqualify you all together.
That’s really all the information most companies ask for and then are willing to loan a person as much as $1,500 on their promise to pay them back.
With all of these financial negatives in the pay day loan industry one might wonder how companies could ever make a profit, the answer is in their finances fees. Because pay day loan companies understand that they are mostly dealing with people with bad credit problems to begin their rates are based on what sector of the financial world they are dealing with. Because they don’t bother to do credit history checks, other than what is apparent on your bank statement this of course likely means they assume you are a high risk when you walk through their office door and thus even people with a great credit history who find themselves in a bind will see finances fees normally ranging from 20% per 14 days or about 588% annually, and these fees can go all the way up to 38.50% depending on the pay day loan company you’ve chosen.
Here is where this process can quickly become a “bear” for those who don’t understand the process. Pay Day Loans are not like bank loans or credit card loans where as when you pay that minimal fee some of it is applied to the principle. People expect that their minimal payments are working toward eventually paying the loan off, but this is not how pay day loans are set-up and people get confused.
Most pay day loans work like this; a loan with most companies is due in full on your very next payday. So for example, you took out a $1000 loan for 14 days and the finance charge was 20% for those 2 weeks. You would be expected to pay back approximately $1,200 on your pay day. This is to be paid in full or you are given only one other option and that is paying the current finances charge and then refinancing the loan toward your new pay day. Remember this loan was refinanced for the same amount of principle you started with so you would still owe $1,200 when your next pay day comes around. This could go on for months or even years.
Pay day loans over the Internet is a more convenient way to get access to these short term loans. Pretty much all online companies require that your paycheck is on Direct Deposit. You would fax in all your information to their office and you would be notified of your approval via email or over the phone. Either a check is immediately sent to you via courier or overnight service can be arranged for additional fees.
Many Pay Day Loan companies in the UK have recently begun to electronically transfer the money straight to your account. They also automatically deduct the minimal bi-weekly or even weekly finances charge from your account electronically. Online Pay Day Loan companies will continue to draw these fees from your account until you pay the entire balance off. So again, this could go on for months.
When a pay day loan company offer their clients up to 80% of their income it basically means your next “entire” pay check must go to that pay day loan company to get out of the loan. Most people can’t give up their entire check and still survive, thus they get trapped in a never ending cycle of paying finance fees one pay check after another.
All too often people go to pay day loan offices needing just a $100 or so to get by until their next pay day. When they are told they can get $800 people some unwisely take the money not really understanding how the pay back process works. To pay day loan companies due process, most instruct their Customer Service Representatives to explain the loan process to each and every client, but when people are in dire financial straights too often they’ll agree to anything to get themselves out of the immediate crisis only to walk into another and sometimes one that is far worse than they expected.
Pay Day loans can be the second chance haven for some people who find themselves in an emergency when there is no other financial company that will trust them with a loan due to poor past money managing. In fact, you can be late or don’t pay until it goes into collections and even then you can come back and get a new loan at most companies. They are very forgiving. Pay day loan companies can be a life saver if used properly. They can get you out of a sticky situation when you have no other alternative. Not all pay day loan companies work in this manner, the majorities do, but there are others who are more willing to work with their clients in pay these loans off in smaller increments.
When you find yourself in a financial crises and you find that a pay day loan is your last option don’t panic and go to the first office you see. Follow the rule of going through the process of comparison shopping as you should do with any financial purchase or arrangement. Find the best pay day loan offer that give you the best options on paying the loan back in a way that won’t hurt you to badly in doing so.